IPO Preview: Zoe's Kitchen

Apr.11.14 | About: Zoe's Kitchen (ZOES)

Summary

Specialty fast casual restaurant with Mediterranean-inspired dishes.

As of February 24, 2014 ZOES had 111 restaurants in 15 states.

Expects to double its restaurant base in approximately four years.

Based in Plano, TX, Zoe's Kitchen (NYSE:ZOES) scheduled a $70 million IPO on the NYSE with a market capitalization of $221 million at a price range midpoint of $12 for Friday, April 11, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint managers: Jefferies, Piper Jaffray, Baird

Co-Managers: William Blair, Stephens, Stifel

End of lockup (180 days): Wednesday, October 8, 2014

End of 25-day quiet period: Tuesday, May 6, 2014

Summary
ZOES is a specialty fast casual restaurant with Mediterranean-inspired dishes. As of February 24, 2014 ZOES had 111 restaurants in 15 states.

2013 revenue grew 46% to $116 million vs. 2012.

Valuation

Glossary

Compare

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

Gross

2013 yr

Cap (MM)

Sls

Erngs

BkVlue

TanBV

Profit %

Zoe's Kitchen

$221

1.9

-59.7

2.3

3.6

67%

Noodles (NASDAQ:NDLS)

$1,150

3.3

171.6

9.3

9.3

34%

Chuy's (NASDAQ:CHUY)

$678

3.3

61.6

6.5

11.9

73%

Potbelly (NASDAQ:PBPB)

$538

2.0

22.4

6.6

7.1

71%

Click to enlarge

Conclusion
ZOES believes it's in the early stages of its growth story and expects to double its restaurant base in approximately four years.

The rating on ZOES is a buy.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

ZOES is a fast growing, fast casual restaurant concept serving a distinct menu of fresh, wholesome, Mediterranean-inspired dishes delivered with Southern hospitality.

Growth Plan
ZOES has expanded its restaurant base from 21 restaurants in seven states in 2008 to 111 restaurants in 15 states as of February 24, 2014.

ZOES opened 27 restaurants in 2013, and plans to open 28 to 30 restaurants in 2014.

ZOES believes it's in the early stages of its growth story and estimates a long-term total restaurant potential in the United States in excess of 1,600 locations.

ZOES utilizes a sophisticated site selection process using proprietary methods to identify target markets and expansion opportunities within those markets.

Based on this analysis, ZOES believes there is substantial development opportunity in both new and existing markets.

ZOES expects to double its restaurant base in approximately four years.

History

Founded in 1995 by Zoë and Marcus Cassimus in Birmingham, Alabama, ZOES is a natural extension of Zoë Cassimus' lifetime passion for cooking Mediterranean meals for family and friends.

Since opening its first restaurant, ZOES has never wavered from its commitment to make its food fresh daily and to serve its customers in a warm and welcoming environment.

ZOES believes its brand delivers on its customers' desire for freshly-prepared food and convenient, unique and high-quality experiences.

Historical growth
As a result, ZOES has delivered strong growth in restaurant count, comparable restaurant sales, average unit volume (AUV), revenues and Adjusted EBITDA.

ZOES has grown from 21 restaurants across seven states, including five franchised locations, in 2008 to 111 restaurants across 15 states, including six franchised locations, as of February 24, 2014, representing a compound annual growth rate ("CAGR") of 38.1%.

ZOES-owned restaurants have generated 16 consecutive fiscal quarters of positive comparable restaurant sales growth, due primarily to increases in customer traffic, which ZOES believes demonstrates its growing brand equity.

ZOES has grown its Company-owned restaurant average unit volume from $1.1 million in 2009 to $1.5 million in 2013, representing an increase of 32.9% over that time period.

From 2009 to 2013, ZOES's total revenue increased from $20.8 million to $116.4 million and Adjusted EBITDA increased from $0.9 million to $10.9 million. ZOES generated a net loss of $2.8 million and $3.7 million in 2009 and 2013, respectively.

ZOES's growth in comparable restaurant sales since 2009 has allowed it to invest significant amounts of capital to drive growth through the opening of new restaurants and the hiring of personnel required to support its growth plans.

Dividend Policy

No dividends are planned.

Intellectual Property

ZOES has registered the following marks with the PTO: Zoës Kitchen; Zoe's Kitchen; Simple. Tasty. Fresh!; Zoës Fresh Take; and Simply 500. ZOES also has certain trademarks pending in certain foreign countries.

In addition, ZOES has registered the Internet domain name zoeskitchen.com. The information on, or that can be accessed through, ZOES's website is not part of this prospectus.

Competition

ZOES faces significant competition from a wide variety of restaurants, convenience stores, grocery stores and other outlets on a national, regional and local level.

ZOES believes that it competes primarily based on product quality, restaurant concept, ambiance, service, location, convenience, value perception and price. ZOES's competition continues to intensify as competitors increase the breadth and depth of their product offerings and open new restaurants.

Additionally, ZOES competes with local and national fast casual restaurant concepts, specialty restaurants and other retail concepts for prime restaurant locations.

Seasonality

Seasonal factors and the timing of holidays cause ZOES's revenue to fluctuate from quarter to quarter.

ZOES's sales per restaurant is typically lower in the first and fourth quarters due to reduced winter and holiday traffic and higher in the second and third quarters.

Adverse weather conditions during ZOES's most favorable months or periods may also affect customer traffic.

In addition, ZOES has outdoor seating at all of its restaurants, and the effects of adverse weather may impact the use of these areas and may negatively impact its revenues.

5% stockholders

Brentwood Associates and related funds 70.56%

Greg Dollarhyde and related entities 7.85%

Jemison Investment Company 7.34%

John Cassimus 6.26%

Use of proceeds

ZOES expects to net $62 million from its IPO. Proceeds are allocated as follows:

to repay the entire amount of the outstanding borrowings under its Credit Facility;

to support its growth, primarily through opening new restaurants; and

for working capital and general corporate purposes.

Disclaimer: This ZOES IPO report is based on a reading and analysis of ZOES's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

SEC Documents

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.